People don’t want to purchase goods linked to coal burning, deforestation or child labour. But up to now, most companies with long supply chains can’t guarantee the origin of the raw materials that go into their products, nor how they are produced. But that will be changing. The European Commission will soon require companies to minimise environmental and human rights risks in their supply chains. It has also recognised that sustainability schemes can play an important role.
A proposal for a new Directive on ‘Corporate Sustainability Due Diligence’ has been published recently. It takes its lead from the UN Sustainable Development Goals, with requirements based on specific UN treaties and conventions that are concerned with human rights and the environment. In the justification, the Commission says that large European companies have been associated with serious abuses in their value chains and that voluntary measures to improve corporate behaviour have not been effective. Climate change is singled out as a key environmental risk. Companies must be aligned with the limiting of global warming to 1.5 °C, in line with the Paris Agreement. This new legal move reflects the sad reality that even when a country has signed a UN treaty, implementation and enforcement may be inconsistent or even non-existent.
The problem with commodities is that storage, transport and processing involve mixing of materials from different origins, so that it is difficult to know the exact identity of any individual batch. So, even companies who want to do the right thing and audit the practices of their supply chain, will find it difficult. And then, the need to have multiple suppliers to reduce availability problems, makes the task even harder. This is where sustainability schemes offer a solution. They provide the standards, auditors and oversight to ensure that each operator in the chain observes the environmental and human rights safeguards set out by the scheme. And at the top of the supply chain, the raw material is produced to a high standard, even in those countries where these safeguards are not enshrined in law. So, it is not necessary for a company to know the identity and location of every operator who stores or processes its raw materials, just that they are passing on sustainably certified materials.
The Directive acknowledges that sustainability schemes, multi stakeholder initiatives, and industry collaborations will allow companies to minimise the effort involved to comply. However, they foresee the need to ‘assess the fitness’ that sustainability schemes can be relied on for the required due diligence.
Some commodities, including timber, palm oil, sugar, beef, aluminium and conflict metals, already have their own sector sustainability schemes. It would be very helpful to their members who sell in Europe if they aligned their standards with the requirements of this new Directive. However, they will know from the experience of sustainability schemes for biofuels, that an assessment by the Commission and its lawyers is administratively heavy, with ongoing changes needed plus five yearly renewals of recognition. It will also mean that some schemes will have to toughen up their safeguards. But the advantages of recognition are likely to outweigh the disadvantages for most large sustainability schemes. Operators will be able to demonstrate their compliance by purchasing sustainably certified products. This will increase demand right along the supply chain with benefits for those farmers, miners, and forest managers who have invested in certification.
All larger companies will have to comply if they do business in the EU. Eligibility criteria are based on industry sector, turnover in the EU and people employed (including agency staff) within Europe. Extractive and processing industries, agriculture, forestry, fishing, textiles, clothing and footwear sectors will all have lower turnover and employee thresholds in recognition of their higher risk status.
The Commission lays down the framework for enforcement with a supervisory authority in each Member State, a European network of supervisory authorities, guidance on how companies should react to risks they uncover and sanctions for non-compliance.
All of this could change as the Directive is debated and approved. However, it is clear that the Commission understands the power it has to influence companies wanting to sell their goods in Europe, wherever their head office is based. And it is a tribute to sustainability schemes that their potential for good is so explicitly acknowledged. They should take this opportunity to extend their influence. Their members and stakeholders will thank them for it.
Published: 22 March 22
